Today’s Saturday, and having just come back from New Orleans, I’m catching up on stuff at the office.

Leslie saved all my Wall Street Journals and the LA Times (I love reading the papers) and the main article in the Business section of last Friday’s LA Times caught my eye. It said the tax exemption on principal reduction (such as on short sales) expires December 31st and “struggling homeowners who obtain reductions in their mortgage debt face a new obstacle starting next year – a bill for taxes on that aid”.

Many of us Realtors have known about this for quite a while and have been beating the drum in warning homeowners about this huge, potential “gotcha”.  Realtors are pushing hard to get this law extended, but with the election in November, gridlock in Congress, a potentially new President, etc, no one is sure what will happen.

If you are wondering about your own personal situation, don’t delay understanding these implications and determining your course of action. If the law expires, and you obtain mortgage debt relief in 2013, you may be taxed on that debt relief as though it were cash income to you. As always, Realtors can not provide legal or tax advice so please consult with your own tax adviser.